It has been in talks with the state of Victoria over subsidies for the services for a year, but said it had been unable "to reach a revised financial arrangement without incurring an unacceptable level of operational and financial risk from next year onwards".

Phil White, chief executive, said: "It's disappointing. We tried to make it work but the Victorian government have their funding limits and we have our risk limits." National Express won three franchises in 1999 to run train and tram services in the Melbourne area.

However, revenues have been plagued by fare-dodging and National Express negotiated an extra £20m of interim funding this year. The operations still made half-year losses of £2.3m on turnover of £85m.

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The subsidy drops by £11m next year and National Express said it would have incurred "significant" losses, believed to be £40m-£50m. The £135m charge includes a £48m cash hit from the forfeit of a performance bond and an £87m non-cash writedown on its investment. The shares fell 14.5 to 405p.

Analysts were concerned about the collateral damage to National Express' remaining bus operations in Brisbane, Sydney, Perth and Melbourne. One said: "There will be a big impact on the company's bidding credibility."

Mr White, who has no immediate plans to exit these operations, said: "Obviously Melbourne will be more affected and we have to maintain our relations with the government, but so far they have been cordial."

He said the company's other operations were trading in line with forecasts, but expressed concern at the Strategic Rail Authority's demands that train operators cut costs by 10pc-20pc. Asked how he would do that, he said: "I've no idea."

The SRA and the train operators met last night to discuss ways of cutting costs.